The latest Northern Trust poll of some 100 global fund managers has highlighted increasing fears about US equity valuations and calm-before-the-storm volatility.
According to the June quarter survey of the Northern Trust multi-manager panel, 65 per cent of respondents rated US shares as over-valued, rising from 51 per cent in the previous quarter to the highest level since the poll’s inception in 2008.
In another peak metric for the Northern Trust survey, over 80 per cent of respondents expected the US share volatility index (VIX) to rise in the next six months.
About a quarter of those surveyed said the current historical-low VIX levels “reflect fundamentals, such as low growth and low inflation”.
“However, 63 per cent of managers see this as a warning of too much complacency in the markets, which may lead to a sell off,” Northern Trust says.
Christopher Vella, Northern Trust Asset Management Multi-Manager Solutions chief investment officer, said most respondents remain bullish on US “GDP growth, low inflation and earnings growth” in spite of market valuation concerns.
“Even though survey respondents over the past few quarters have been increasingly less positive on US equity valuations, the US equity market has been resilient and has provided good returns,” Vella said in a statement.
Over the quarter most of the managers surveyed held their portfolio positions, albeit with a slight uptick in those taking a more risk-averse stance (up 3 per cent to 34 per cent compared to the end of March this year) and a sharpish decline in those taking on more risk (down to 4 per cent from 14 per cent in the previous survey).
Since the end of September last year, risk aversion in the Northern Trust manager set has crept up from 28 per cent to the current 34 per cent.
Both European and emerging markets equities gained favour over the quarter with the proportion of managers rating the asset classes as undervalued rising to 62 per cent and 55 per cent, respectively, a rise of about 7-8 per cent.
Overall, respondents were most upbeat on emerging market equities with US fixed income the least-favoured sector.
“Regarding industry sectors, managers are most bullish on information technology again this quarter,” Northern Trust says. “Healthcare ranked second, followed by financials. The sectors managers are most bearish about are utilities, consumer staples and energy.”